Buying your first home in Sydney is a monumental task – there’s no denying that. First Home buyers for years have had to sit back and watch Sydney’s property market grow exponentially to the point where hope seemed lost forever that they would ever be able to purchase.
Fast forward 2 or 3 years and with some govt intervention and a slowing market, the time seems right for those who have been trying to enter Sydney’s market to do so now. However, the issue that many seem to be facing is not so much the crazy prices, but attaining lending from financial institutions. Many have identified the house and land they want to buy, started building the dream in their minds only to findout the banks have tightened lending and are turning them away in droves.
From our experience, one way around this is partnering with a guarantor in the purchase for at least the initial stage. For many First Home buyers, this is usually the bank of Mum and Dad. If you’re fortunate enough to have parents in the position to offer financial assistance – they can be the final cog banks require to get you over the line in terms of financing. What we’re surprised about is that according to a survey recently published by Mortgage Choice, only 4.9% of first home buyers said they used a guarantor to purchase a property. Astounding right?!
According to the report around 95% of first home buyers are potentially delaying or missing out on the opportunity to get into the property market by not including a guarantor on their home loan. Mortgage Choice CEO Susan Mitchell said the data raises the question of whether first home buyers are missing an opportunity. Mitchell said, “For many first-time buyers, the biggest hurdle they face is saving a sufficient deposit that amounts to 20% of the purchase price and this has been made even harder by strong property price growth over recent years.”
“One way first home buyers can get a leg up onto the property ladder is to access intergenerational wealth, created by the boom in the property market and ask a parent to be a guarantor by offering their own home as extra security. “This strategy lets them get onto the property ladder sooner rather than later and with a smaller deposit and has the added advantage of avoiding Lenders’ Mortgage Insurance, which can total thousands of dollars for cash-strapped first home buyers.” She added, “If a buyer has a guarantor on a home loan, it is essential they speak with a qualified mortgage broker and a solicitor to protect both parties. Having a family member go guarantor on a mortgage is not without risk and as such, no one should jump into the situation until they’ve given it considerable thought”. “It is helpful to note that a guarantor is not tied to the loan for its entire duration. Once a buyer has built up sufficient equity in their property, a guarantor can apply to be released from the loan, though this may incur a fee.
“Lastly, buyers should always look at their other options as a guarantor is not the only way that someone can purchase a property. A buyer can receive a one-off financial gift to help cover part or all of the cost of the deposit, which reduces the risk to a potential guarantor.”
So don’t forget, if you’re in a difficult position in trying to get over the line to buy your first home – having a Guarantor available could make the world of difference.
Authored: Steve Hadfield, Sales Manager